Japanese Yen strengthens to over two-week high as US Dollar weakens, trade tensions linger
- USD/JPY slips toward 143.00 as broad US Dollar weakness drives gains in the Yen.
- US–Japan trade talks stall as Tokyo resists pressure to open agriculture, Trump criticizes over rice imports.
- Japan’s au Jibun Bank Manufacturing PMI returns to expansion, Tankan survey shows slight improvement in business sentiment.
The Japanese Yen (JPY) gains against the US Dollar (USD) on Tuesday, reaching its highest level in over two weeks as the broadly weak Greenback remains under pressure amid fiscal uncertainty and dovish Federal Reserve (Fed) expectations.
The USD/JPY pair is edging lower, hovering near the 143.00 mark during the American session, down around 0.70% on the day. The Yen’s strength persists even as renewed trade tensions with the United States intensify, highlighting broader US Dollar weakness as the dominant market driver.
Trade tensions between the United States and Japan have resurfaced, with recent negotiations yielding little progress. Washington is pressing Tokyo to open up its agricultural markets—particularly for American rice—while also demanding greater access for US auto exports. “They won’t take our RICE, and yet they have a massive rice shortage. In other words, we’ll just be sending them a letter, and we love having them as a Trading Partner for many years to come,” Trump said in a post on Truth Social.
Japan, however, remains firm in protecting its domestic farmers, pushing back against what it views as excessive US pressure. "I have repeatedly stated that agriculture is the foundation of the nation," top trade negotiator and Economy Minister Ryosei Akazawa told a press conference. "In negotiations with the United States, our stance remains unchanged: We will not engage in talks that would sacrifice the agricultural sector," he said, adding that he would continue to negotiate with his US counterparts to protect Japan's national interests.
Japan’s latest economic data shows signs of slow but steady recovery. The au Jibun Bank Manufacturing PMI rose to 50.1 in June — the first expansion in 13 months — driven by improved factory output and the seventh month of employment growth, though new and export orders continue to fall amid persistent tariff uncertainty. Meanwhile, the Bank of Japan’s latest Tankan survey showed that business confidence among large manufacturers improved slightly. The index rose to 13 in the second quarter, up from 12 in the previous quarter and above market expectations of 10, signaling a modest boost in sentiment.
Kazuyuki Masu, the newest addition to the Bank of Japan’s policy board, echoed a cautious tone on Tuesday, stating that the central bank should not rush into raising interest rates given lingering economic risks. Masu emphasized that underlying inflation remains below the BOJ’s 2% target and stressed the importance of a gradual approach to policy normalization amid global trade tensions and domestic uncertainties.
Looking ahead, traders will closely monitor key US labor market and activity data, including the JOLTS Job Openings and ISM Manufacturing PMI later on Tuesday, the ADP Employment Change report due Wednesday, followed by the highly anticipated Nonfarm Payrolls (NFP) release on Thursday. Weaker-than-expected figures could strengthen expectations for a Fed rate cut in September, potentially putting further downside pressure on the US Dollar.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.